Dow ends near 4-month highs

Chip rally gives Nasdaq 4th week of gains

By

JulieRannazzisi

NEW YORK (CBS.MW) -- A hearty advance in the tech sector buoyed the stock averages Friday, taking the Dow to its highest close in almost four months and allowing the Nasdaq to extend its winning streak to four straight weeks.

Uplifting results from Nvidia and a positive outlook from Intel aided semiconductors, which were the best performers in the tech group.

Buyers also focused on the networking and hardware sectors, with the latter boosted by Gateway's ascent after the company backed its profit targets for the remainder of year. Check market stats and latest sector performance.

On the week, the Dow rose 0.3 percent, the Nasdaq 1.2 percent and the S&P 0.3 percent.

The Dow Jones Industrial Average
DJIA, -0.67%
put on 113.38 points, or 1.3 percent, to 8,604.60, underpinned by Intel, American Express, Boeing and SBC Communications. Only four of the Dow's 30 components -- Eastman Kodak, Citigroup, 3M and Johnson & Johnson -- dripped in red ink.

On Friday, the House passed a $550 billion tax cut bill that scaled back on the White House's call to eliminate the double taxation of dividends. The Senate is slated to vote next week on a package of $350 billion in tax cuts. Check full story.

Joe Liro, equity analyst at Stone & McCarthy Research Associates, said the market is now discounting pretty good news on the economy and earnings. "Sooner or later we'll have to deliver."

But Liro said he's cautiously optimistic on the outlook for equities. For one, geopolitical uncertainties have subsided. And technical indicators on the stock market look a whole lot better these days.

"The technicals are distinctly better this time around. Declines have come on less volume compared to up days and each market dip has been less severe," the strategist said.

Mark Arbeter, chief technical analyst at Standard & Poor's MarketScope, said one indication that technical conditions have been strengthening during the current rally vs. rallies off the July and October lows is the improvement of many individual chart patterns.

"There are now many constructive looking bases that have developed over the past year and a nice increase in the number of new 52-week highs on both the NYSE and the Nasdaq. This chart improvement is characteristic of a market attempting to transition from a bear market to a bull market," Arbeter maintained.

But he floated some caution over the longer haul.

"While there has been an improvement in chart patterns from an intermediate-term perspective, many stocks face an enormous amount of overhead supply. This is one of the primary reasons that we believe gains will be limited looking out over the next few years," Arbeter said.

Volume came in at 1.30 billion on the NYSE and at 1.55 billion on the Nasdaq Stock Market. Market breadth was overwhelmingly positive, with advancers squashing decliners by 24 to 8 on the NYSE and by 22 to 10 on the Nasdaq.

On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $200 million over the week ending May 7 compared with inflows of $1.2 billion in the prior week. And equity funds that invest primarily in U.S. stocks got inflows of $400 million vs. inflows of $1.6 billion during the prior week.

Finally, Trim Tabs said bond funds received inflows of $2.2 billion in the latest week compared with inflows of $2.3 billion the prior week.

Coke jumps while J&J wilts

Coca-Cola
KO, -1.48%
swelled 2.6 percent after being upped by Bear Stearns to an "outperform" rating from a "peer perform" on belief the beverage titan's valuation has caught up with the fundamentals and that its long-term outlook is improving. Coke received an upgrade from by Morgan Stanley earlier in the week. See full story.

Johnson & Johnson
JNJ, -0.73%
edged down 0.2 percent after USB Piper Jaffray downgraded the Dow company to a "market perform" rating from an "outperform." The firm feels that modestly dilutive acquisitions could keep a lid on J&J's earnings power. Check The Ratings Game.

Dow component Hewlett-Packard received some favorable words from SG Cowen, which sent its shares 1.5 percent higher. Cowen believes the hardware behemoth
HPQ, -1.03%
is undervalued, not fully reflecting the value of its core imaging and printing franchise as well as improved return prospects in its computing and services businesses.

Meanwhile, Goldman Sachs began coverage on Dow stock United Technologies
UTX, +2.21%
with an "outperform" rating, noting that the stock currently trades at a 25 percent to 35 percent discount to other diversified companies -- and an even larger discount to the broader market -- despite demonstrating more consistent returns in the past recession. UTX closed up 2.5 percent.

In other analyst actions, Georgia-Pacific
GP, +15.63%
put on 6.3 percent following a J.P. Morgan upgrade to a "neutral" rating from an "underweight." The entire paper sector moved higher in tandem, with Weyerhaeuser up 2.7 percent and Dow stock International Paper up 2.5 percent.

Dow company Citigroup
C, +0.71%
pulled back 0.4 percent and was one of the Dow's few downside movers. On Thursday, the company dismissed Robert DiFazio and Arthur Hyde as co-heads of global equities, a position they held since late 1997. See full story.

Online brokers fared well, with Ameritrade
AMTD, -1.21%
up 3.5 percent after reporting that average daily volume came in at 124,000 in April, up from 78,000 in the year-ago period. E-Trade Group climbed 1.7 percent.

Rally in Nvidia, Intel propels chips

Graphics chip maker Nvidia
NVDA, -3.04%
surged 33.1 percent after posting late Thursday a first-quarter profit that topped analysts' expectations. The company also offered an upbeat sales forecast for the second quarter. See full story.

Rival ATI Technologies sprinted 7.8 percent on the back of Nvidia's results. And chip bellwether Intel swelled 3.8 percent, pushing the Philly Semiconductor Index
SOX, -1.21%
3.8 percent higher. Deutsche Bank said in a research note that Intel's
INTC, -0.82%
chief operating officer indicated at a roadshow in London Thursday that PC sales were tracking well.

Hardware shares
$GHA
fared well, with Gateway
GTW
a standout. The stock swelled 8.4 percent after backing its revenue and earnings targets for the second quarter and indicating that it was comfortable with Wall Street's current estimates for its third and fourth quarters.

Treasurys mixed

Government bonds ended mixed as the market digested this week's refunding auctions.

It was a banner week for Treasurys, with long-dated issues the big winners as yields hover at 2-month lows.

The Fed's talk of a potential risk of deflation in its statement released after the conclusion of its interest rate meeting Tuesday set the bond bulls free and triggered a massive amount of buying.

But on Friday, Treasury Secretary John Snow told reporters that he does not believe the U.S. is at risk of being in a significant deflationary period, adding that comparisons to Japan would be inappropriate.

No economic indicators were set for release Friday. Next week's calendar heats up considerably and is highlighted by the March trade figures, the April retail sales report, the April producer and consumer price indexes and April industrial production and capacity utilization numbers. Check economic calendar and forecasts.

In the currency sector, the dollar edged up 0.1 percent to 117.21 yen while the euro gained 0.1 percent to $1.1490, reaching a fresh 4-year high against the U.S. currency this week.

One economist said the dollar's recent weakness could ward off deflation worries.

"Policy pundits may be wringing their hands over the possibility of deflation, but the financial markets could very well have already provided a way out of this potential trap," wrote Moody's Investors Service chief economist John Lonski in a note to clients.

"The dollar's weakness against so many key currencies argues that domestic prices will rise, not fall, in the new future. Until recently, a strong dollar has helped ward off the threat of inflation. But as import costs rise relative to those of domestic goods, consumers could find themselves paying more for imports and related goods. Domestic prices may face far more upward than downward pressure," Lonski concluded.

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